The future of business agreements: Trends you can’t afford to ignore

With digital transformation becoming the buzzword in every industry, progressive businesses are going all out with it. Business agreements and contract management is one area that has gone increasingly digital in recent times. And it’s about time!

The current contract management landscape isn’t without its challenges, however. Mentioned ahead a few current challenges and barriers to improvement.

Poor data centralization

More often than not, companies create hundreds of contracts and have them scattered across multiple systems/platforms. This results in fragmentation of crucial information, causing delays, inefficiencies, and difficulty in maintaining visibility of risks and obligations.

Too many stakeholders

One of the main reasons contract management is complex is because it is not limited to a single department. A considerable part of the organisation gets inevitably involved. With multiple stakeholders at the helm, decision-making can become slow and complex. With no clear responsibilities set, driving improvements becomes tough.

Lack of alignment

Digitisation is the future and this applies to agreements and contracts as well. Lackadaisical attempts at enabling digitisation can result in failed implementations or weakening systems. Without the necessary push and clear ownership, it can be nearly impossible to align different departments within the company.

Ever-changing regulations and market conditions

The regulatory compliance landscape is constantly evolving with new laws coming into existence all the time. Monitoring these ever-changing laws and ensuring compliance is crucial for businesses to stay competitive. Non-compliance and failure to uphold contractual obligations can result in strained business relationships, lower revenue, and lost reputation.

Similarly, keeping track of the fluctuating global market conditions can pose several difficulties. Without advanced tools, businesses stand to lose sight of demand, forecasting, inventory management, and so on.

Environmental challenges

Traditional paper-based contract documentation calls for the use of paper, which results in deforestation and energy-intensive printing. Further, poorly managed contracts can lead to non-compliance with environmental regulations. What’s more, transportation for in-person negotiations and supply chain related operations can add to greenhouse gas emissions. Moreover, not following eco-friendly practices can worsen the situation by promoting unsustainable operations.

Other than this, research reveals that:

• 84% of businesses experience pressure for contract simplification.
• 65% of organisations are focussed on improving communication.
• 81% of companies have plans to implement contract automation.

In the age of AI, companies are relying on advanced technology to create, manage, and execute agreements as well as to navigate complex regulatory landscapes and global markets. In other words, the future looks bright. With this in mind, let’s explore how developments in the field of contracts and agreements are shaping businesses and learn about what the future holds.

Future business agreement trends to watch out for

1. Increased adoption of CLM systems

Agreements and contracts are increasingly becoming digital, which has brought CLM (Contract Lifecycle Management) platforms into the spotlight. These platforms help in end-to-end contract management, from drafting and signing to implementation and renewal. They also automate workflows, streamline processes, and enable the real-time tracking of the agreement’s stage.

CLM systems employ artificial intelligence and machine learning to improve agreement analysis, risk identification, and decision-making. Most CLM platforms operate based on the same principles, with user experience becoming the key differentiator. New-age CLMs are intuitive, easy to use, offer customizable dashboards, and provide contextual guidance.

All in all, a reliable CLM platform helps lower complexity and empowers users to swiftly access business-critical data and complete tasks. With factors such as data consistency and operational efficiency coming into play, high user adoption of CLM platforms is expected to continue in the coming years.

AI-powered automation

AI transforms everything it touches, and business agreements are no different. Tasks such as agreement reviews, risk analysis, and compliance monitoring can now be automated with better precision. AI tools help with mining crucial clauses, terminologies, and obligations while reducing the time spent on manual review and human errors. With generative AI gaining acceptance, the possibilities in the world of business agreements are truly becoming endless.

It’s crucial that businesses continually evaluate AI-based solutions for managing agreements. These solutions can be either standalone or part of a comprehensive CLM tool. After all, practices related to creating and managing business agreements are multifaceted and ever-evolving. It is, therefore, vital that businesses examine their readiness for adopting AI-backed solutions and gauge the capabilities of their existing CLM system to prepare for the next level.

3. Greater use of NLP

Business agreements tend to contain a whole lot of legal jargon. Deciphering it can be daunting especially since legal language is not universal.

Fortunately, managing agreements can be simplified with solutions driven by AI and NLP (Natural Language Processing). They help parties understand the exact nature of agreements while enabling a human-like understanding of the complex jargon.

AI and NLP can rapidly extract and categorise vital contractual data and provide precise insights on clauses or terms that may otherwise be hard to comprehend.

As mentioned, legal language varies by region and industry. Hence, a large number of organisations are going to rely on NLP to identify and include clauses from their standard templates. By doing this, they will be able to create a library of specific terms and conditions to be incorporated when evaluating or authorizing future contracts.

4. Blockchain for smart contracts and agreements

Blockchain may not be brand new technology but its full potential is yet to be tapped by businesses. It lies at the heart of smart contracts and brings to the table features such as decentralisation, transparency, and immutability. Through smart contracts, terms of the agreement can be written directly into code, which can come into effect without the need for any external intervention.

Amid growing concerns after security breaches the world over, smart contracts greatly reduce administrative burdens while considerably lowering the risk of fraud and disputes. Because the technology is based on blockchain, it is secure. Once a record is entered into the system, it cannot be altered by anyone, ensuring that all parties involved can be trusted. Blockchain is being and will continue to be harnessed for its high level of efficiency in managing confidentiality in contractual obligations.

5. Increased emphasis on data security and regulatory compliance

Technology is now taking centre stage in creating, managing, and executing business agreements. Consequently, it will become important to address issues related to data privacy and compliance.

Regulations like the GDPR, DORA, CCPA, and other laws mandate the proper handling of confidential data by companies. Failure to comply can result in penalties and loss of credibility. Businesses should, therefore, prioritise compliance features in their system and ensure that data collection, usage, and storage meet global regulatory standards.

One of the best ways to mitigate risks associated with AI technologies is to work with a reputed and trustworthy digital solutions provider. When partnering with a provider, ask critical questions, such as who (from the provider’s team) would have access to your company’s data, how they plan to use your data, and if they intend to anonymise it. Inadequate or the lack of due diligence on your part can cause legal trouble later.

Consider the EU AI Act which came into force this year. It is helping set a global standard for classifying AI risks and guiding businesses to follow regulations according to the level of risk their systems pose. Going forward, companies will be expected to follow the utmost transparency in reporting, with penalties in case of non-compliance.

6. Integration with the current ecosystem

No matter how big or small, business agreements do not exist in isolation. They’re connected with many business departments, and touch upon various processes and solutions including small business invoice and accounting software, and customer experience programs.

In the future, business agreement and contract management systems will flawlessly integrate with these internal ecosystems, speeding up data sharing and automating workflows. This will boost efficiency, reduce duplication and manual work, and provide a holistic view of agreement-related developments. Complete integration will also boost inter-departmental collaboration and cooperation.

7. AI-driven negotiation and obligation management

While AI may not be able to draft entire contracts on its own (yet), it can help assess agreements and raise alerts upon identifying opportunities and risks. This can speed up the process of reviewing agreements.

AI can also promptly update the terms of the agreement at the time of renewal. Some companies are already implementing AI-backed chatbots for various kinds of interactions, including negotiations. This frees up the human workforce for more strategic tasks. With the continuous evolution of AI, companies will likely make this a standard practice and use smart technologies for negotiating agreements and expediting contract-related workflows.

Businesses can also look forward to employing machine learning models when including clauses that other stakeholders are most likely to accept. This will be done based on the important metrics that determine how the agreement’s terms and conditions relate to the business’s success/failure. Hence, having these metrics in place will be crucial for businesses.

Once agreement data can be extracted from the platforms that generated the contract, businesses will be able to determine which clauses result in successful negotiations. Fortunately, detection capabilities for obligation management (like agreement expiration dates) are already being used by businesses. However, there is further scope for connecting with real-world data with contracts. AI can then figure out the best course of action for creating a contract that is shaped by real-world events, thereby minimizing risks.

8. Improved collaboration with vendors

As the business environment becomes more agile, traditional collaboration methods can result in lengthy cycle times, long negotiation processes, and low visibility into the implementation stages. Further, with email collaboration becoming redundant, businesses will need to create a centralized portal to collaborate and communicate with vendors on an ongoing basis.

This portal will act as a self-service supplier hub, playing a defining role in organising and accelerating processes related to negotiations, reviews, and e-signatures. It will also have a tremendous impact on source-to-contract and procure-to-pay processes.

9. Smart identity verification

Thanks to cloud technologies and storage, many business processes now take place online, necessitating stringent identity verification techniques. All business agreements, particularly in finance and sales, contain confidential information (financial and revenue details, social security numbers) that needs to be stored securely. Organisations all over the world are turning to digital identity verification to expedite secure identity authentication.

Once again, businesses will need to work with proven digital identity verification solution providers/vendors. Only they can offer solid security measures, such as encryption to verify users. They know exactly how to take this complex technology and turn it into a user-friendly and accessible solution.

E-signatures (and their legitimacy) are a crucial aspect of digital identity verification, where methods like multi-factor authentication and biometrics can prove helpful. As remote and hybrid work cultures continue to rise, these technologies are key for the secure implementation of any agreement.

All factors considered, businesses are going to continue to fortify their online security by regularly updating protocols. This will help minimize cyber threats and ensure that CLM solutions comply with the applicable regulations (eIDAS in the EU and the ESIGN Act in the US). Automating compliance checks and tracking audits will help lower risks and ensure compliance.

10. Improved analytics

Contract data is the only reliable source when it comes to establishing trust and transparency between parties entering a business agreement. Advanced analytics tools are now being developed to gain deeper insights into the agreement’s effectiveness and risks.

AI-based technologies like predictive analytics are becoming increasingly capable of forecasting agreement outcomes. A thorough analysis of historical data can enable businesses to unearth patterns and risks. This, in turn, is helping businesses make educated decisions during negotiations and renegotiations, and optimize the agreement for more positive outcomes.

11. Contracting tech adoption by small businesses

Often, CLM solutions are thought to be used only by medium or large enterprises. However, this solution has been in increasing demand by companies of all sizes, including small businesses. In fact, with the number of small businesses and startups only increasing, these solutions are now being used more than ever before.

When it comes to small businesses, CLM providers are increasingly adopting a modular approach. Here, users can buy only the CLM features they need. These features may include repository and contract-generating capabilities along with AI analysis. The upside of this approach is that contract management tools can be harnessed even on limited budgets.

12. Adherence to corporate responsibility

With rising global environmental degradation, many countries are considering formulating new requirements for businesses to disclose their corporate responsibility policies. Most often, supply chain emissions are the biggest contributors to a business’s greenhouse gas footprint. To mitigate this and meet their climate goals, companies will need to add sustainability requirements in addendums to vendor agreements.

Many regions across the world already require businesses to reveal their greenhouse gas emissions. Going forward, more companies will set science-backed targets and climate commitments in their vendor agreements to support this growing concern.

Conclusion

The merging of digital technologies, automation, and data analysis is rapidly revolutionising the way businesses manage their contracts and agreements. Whether it is AI-backed automation and blockchain-based smart contracts or regulatory compliance and environment-centric clauses, the future and scope are constantly evolving.

If your business wants to remain competitive and relevant in the modern landscape, embracing the above-mentioned emerging trends will be imperative. Companies will not only be able to boost their efficiency and eliminate risks, but also create ironclad documentation and more collaborative relationships with their partners. In the future, businesses that proactively adopt these trends will certainly gain a competitive edge in the contract management arena.

27/11/2024